WASHINGTON (MarketWatch) — Falling oil prices have given households a break and could help the economy, but receding inflation also reflects lurking threats overseas that could harm the U.S. if they persist.

The price of a light crude oil has fallen about 20% since late June and it recently touched a three-year low of $80 a barrel. In the same span the average price of gasoline nationally has fallen from a 2014 peak of $3.78 a gallon to $3.29 in mid-October.

The average American family with two cars would save $25 to $50 a month in fuel costs if prices remain where they are now — and that’s what most economists predict. Slower global growth has crimped demand for fuel even as a surge in domestic extraction puts the U.S. on the verge of overtaking Saudi Arabia as the world’s largest oil producer.

The upshot: Americans will have more cash to save or spend on other goods and services.

Lower gas prices are also expected to reduce inflationary pressure over the next six months or so, effectively giving consumers a badly needed raise. Since workers aren’t getting much in the way of actual pay raises, lower prices are the next best thing.

“It’s a boost for consumers,” said Jennifer Lee, a senior economist at BMO Capital Markets. “Gasoline pump prices also have a huge impact on consumer confidence.”

Wall Street will get another read on inflation this week with the consumer price index for September. Other indexes have already shown price increases are slowing and the CPI is expected to do likewise. Investors will also find out if falling interest rates are helping sales of new and existing homes.

Sudden reversal

In the spring, inflationary pressures were starting to perk up. Oil prices crested higher and food costs, especially meats such as beef, also soared. Rising home prices added to the upward tilt. As a result, the 12-month rate of consumer inflation doubled to 2.1% in May from 1.1% in January.

Since then food prices have leveled off and oil began a sharp retreat. Consumer inflation decelerated to a 1.7% annual rate in August and it could fall again in September. Some firms such as Barclays even believe inflation could drop below a 1% annual rate by early 2015.

While strong production is a chief cause of lower oil prices, the slowing world economy has played an even bigger role. Europe is on the cusp of another recession and China is not growing as fast as it normally does. That’s reduced global demand for energy.

In the short run the decline in prices stemming from the global slowdown is good for U.S. consumers. Yet in the long term it could hurt the economy if it results in fewer American exports — the export-heavy manufacturing sector is one of the nation’s brightest stars.

Lower oil prices could also choke off some U.S. production if the cost of pulling fossil fuels out of the ground becomes unprofitable. The energy industry has also been an economic luminary, hiring thousands of people and contributing to up to one-third of U.S. growth.

“Energy has made a significant contribution to U.S. growth in the past few years,” said Sam Bullard, a senior economist at Wells Fargo.

The Federal Reserve is paying close attention to the reversal in inflationary trends. One top central banker, St. Louis Fed President James Bullard, even said the bank might have to reconsider its decision to end stimulus for the U.S. economy if inflation weakens much further.

Although the Fed historically is an inflation fighter, the bank has also worried about a deflationary spiral that it believes could do even more damage to the economy. While those concerns are muted in the U.S. right now, Europe is growing more alarmed about such a threat.

For now the Fed has the luxury to wait and see. The U.S. is doing better economically than any other developed country. And near-term trends remain favorable despite a sharp decline in U.S. stock markets triggered by fresh concerns about the global economy.

“The U.S. still appears to be the bright spot as we head into 2015,” Wells Fargo’s Bullard said.

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